Nicholas Stuart is a columnist with the Canberra Times.
Nick Stuart has written three books,
Kevin Rudd: An Unauthorised Political Biography;
What Goes Up: Behind the 2007 Election; and
Rudd's Way: November 2007 - June 2010.

Tuesday, September 10, 2013

CAN I HAVE SOME MORE, PLEASE

Government is largely about money. Dividing the spoils. Sharing out the bounty.

Which is fine when there's more coming in than you need.

Another great News Ltd Image

The problem faced by the new government, however, is rather the reverse.

Its success (or failure) is likely going to rest on its ability to keep different constituencies happy, as this article for the Canberra Times points out . . .

Government finances

The critical element in Labor’s
fall was the way it lost control of the economic narrative. This was all its
own doing.

When the party came to power it
inherited a surplus but significant problems were lurking. This was the moment
to shout of the danger: the structural deterioration of public finances.
Recurrent expenses had increased, dramatically, as a proportion of the budget.
The mining boom masked this. There was always enough money to make it look as
if the Liberals were doing a fantastic job managing the economy. But the
vulnerability was there.

When the GFC hit, Kevin Rudd and
Wayne Swan famously went in hard, early and directing money at households. As a
result, Australia barely felt the effects of the downturn. Critically, though,
Rudd failed to use this opportunity to explain the danger. He was too busy
basking in the glory. Later, when it became obvious that money had been
squandered on school halls and other poor infrastructure choices, Swan simply
promised a surplus as if this would make the bad things disappear.

The opportunities of the Tax review
were frittered away as Rudd picked a fight with the mining industry, before
losing it. After that disaster Labor didn't have the stomach (or the
salesmanship) to do anything much. For most of his time as Treasurer Swan
seemed to be impersonating a cork, bobbing on the ocean.

And this is why the economy will
be Tony Abbott's biggest challenge. It demands urgent attention. Solving
problems will be critical to his re-election chances. The opportunity to score
goals is there because Labor’s abandoned the field; his challenge will be to
find the right policies. Then introduce them in a way that engenders support,
rather than angst.

One hint of the way this could be
done comes from a couple of election campaign speeches. They represent,
presumably, his most recent thinking. They also offer a way to cut through the
Gordian knot of matching grand political commitments to mundane economic
reality.

Take, for example, the commitment
to return defence spending to two percent of GDP. The minute you hear this any
sensible person should have the desire to shout, “rubbish!" It is
obviously ridiculous to fix spending to an arbitrary figure. The amount
allocated to defence should be the amount that's needed to maintain an
appropriate number of ships, tanks and planes. So who decides what’s
appropriate?

The problem is that the military
can always swallow more money. It will cut its force structure to fit the money
allocated. At some point it becomes necessary to fix on a figure and insist,
“that's it, this is all the money you're getting’. Today, for example, defence
receives eight percent of commonwealth spending and if it wants more the money
has to come from somewhere else. The secret to governing well is to get the
departments to squabble amongst themselves. And the way to do this is by dividing
to rule.

By arbitrarily allocating a
certain percentage (and only that percentage) to expenditure in a particular
area, the focus shifts to how the money is being spent, rather
than looking for ever larger handouts. Lobby groups can be told if they want
more money spent on their pet project, they've got to find savings elsewhere.
This has the advantage (for the government) of shutting down political debate.

That's because another of
Abbott's key commitments has been to shrink, or at least contain, the
government’s tax ‘take’ as a proportion of GDP (recently 30.8 percent). The
advantage of putting out ridiculous, no unattainable, statements like this is
that it demonstrates the complete and utter impossibility of reconciling the
many and varied demands that are being made on the government. It's not
possible to simultaneously both boost the amount spent on defence and health,
for example, and reduce taxes. Something has to go.

Swan made the disastrous mistake
of not recoiling in horror and alarm after he first examined the government
finances. Instead he accepted them and later pretended it was responsible to
splurge massive sums to enable us to avoid the GFC. Politically, it was an
opportunity lost.

This time the government won't be
so stupid. Joe Hockey is, I suspect, quite capable of feigning whatever
particular emotion it is that will suit his needs best (and I mean this as a
compliment). The new Treasurer will address the real problem; not in the way
Labor predicted prior to the election by slashing and burning indiscriminately,
but rather by attempting to create a framework that can be used to effectively
arbitrate between competing demands for government spending.

Disability care (1.5 percent of
spending) is one of these areas. How many times a week, for example, should a
disabled person be eligible for hydrotherapy? Or a shower? Where do you draw
the line?

You can go about this in one of
two ways – either by arbitrarily allocating certain amount of money on a
case-by-case basis (with all the uncertainty and unpredictability involved) or rather,
and equally arbitrarily, deciding proportionately how much of the budget should
be devoted to such care. See the political difference?

Our current model allows lobby
groups to noisily demand more from the government. It looks stingy and miserly
by saying “no". The second model allows the politicians to deflect the
attack and pit interest group against interest group. If the school education
sector believes class sizes are still too large, get them to make their case
for the cutting of university tutorials.

This idea was all too much for
Labor. Swan liked to pretend that he was capable of balancing the rival
spending requirements up against one another and determining the right
allocations. If Hockey's clever he'll steer clear of that.